We just wrapped up a challenging time of year for some of our clients. For many teams, the end of the fiscal year seems to coincide with a belt tightening. There is a sudden realization that a team’s allocations have largely been spent. This translates into a few lean weeks before next quarter’s cash infusion allows productivity and project work to ramp back up. Shared resources start to go un-used for fear of a chargeback and many a manager breathes a silent sigh of relief when their team starts requesting holiday vacation time. Project delivery dates begin to slip and everyone points their finger at the holiday season as a cause. Still, many of our clients are aware that something went wrong with the planning and budgeting process all those months ago. Yet the same process that caused the shortfall this year will be used again, over and over again, to plan for future quarters and years.
Besides planning and budgeting projects, we at Cervello help our clients with Big Data and the formal process around using Analytics and Data to support decision making. One of the revolutions in “data” was the subtle shift from using data simply for reporting (backward looking) to using data to drive decisions (forward looking). This means that data can be used not only to measure how we did, but to plan how we should do things! There must be a way to use the data in our client organizations to do a better job of forecasting, budgeting, and planning.
The closest thing to formalized data support and leveraged analytics in planning and budgeting is the concept of driver based planning. This means identifying the changes in data and using those changes to find what is driving increases and decreases in revenue and expenses. The idea has been around for a number of years and has been implemented in many scenarios, most famously in the statistics around sports. You might remember the book or the movie “Moneyball.” While there is a small amount of excitement specifically around driver based planning, there is very little implementation. Even in cases when it might feel like a natural fit, our clients seem reluctant to make the jump and continue to rely more on last year and gut feeling over forward looking data.
For example, we contracted with a manufacturing function in an organization and they did not think to consider commodity prices in their budgeting process. The largest possible change from one cycle to the next for this organization was the price of raw materials. While they certainly lacked a framework to leverage historic commodity data for the purpose of forward looking decision making, implementing a system would have been relatively simple. Instead the inevitable fluctuation of commodity prices wasn’t even considered.
Our clients face many other easily identified drivers including staff attrition, seasonality of product demand, product release schedules, capacity, social media engagement, and a plethora of others that apply strongly and uniquely to their respective organizations. A brief exercise looking at the unique variables (drivers) that alter your revenues and expenses can pay for itself quite easily in better planning and budgeting.
Next year when the fiscal year is closing will your team scale back their work efforts to prevent an over run? Or will planning be precise enough to allow your team to deliver all of their objectives on time and on budget?
(Photo Credit: kenteegardin)
POSTED BY: Matthew Phillips